It’s an interesting week with all the political stuff going on in Washington. I never expected a mob like that, but I guess there are a lot of folks who feel the elections were filled with fraud. I don’t think elections have always been pure; there have always been some antidotal incidents of dead people voting. But, rest assured, our political lives are going to be different over the next two years.
It’s interesting to me that financial markets are ignoring the mayhem in Washington. The stock markets are moving higher, and the commodity market too. Fed cattle markets are trying to move higher this week. Feeders are pricing cattle at $114 live and $180 dressed and no significant trade has taken place as of Thursday morning.
Corn markets are very close to $5, the highest they have been in six years. Feeder cattle markets have softened up as a reaction and tried to gain some strength on the nearby futures contracts. The deferred feeder cattle futures are holding around the $1.50 mark for next August, which is optimistic in my book.
National Cattlemen’s Beef Association is to start their cash marketing program this week, or they ae going to start collecting the data for the project. They have been working with USDA’s Agricultural Marketing Service to get the datasets. It sounds like NCBA is struggling to get everyone involved.
I’ve continued to watch fed cattle slaughter summary each week and it’s clear that feeders are fixing their problem of low negotiated cash sales. Southern Plains feeders are making an honest effort to sell more cattle in the negotiated cash market. Last week ending Jan. 3, Texas, Oklahoma and New Mexico feeders sold nearly 26 percent on the negotiated cash market. Negotiated cash trade was 30 percent nationwide the same week. This has been going on for a couple months.
The fed cattle exchange has been making some changes to how they do business and have added a bunch of new features. The listing of fed cattle on offer is well detailed and transparent. They have a little data string that will tell you what is bid and when it was bid. This week there are listings from only four cattle feeders. So, there is some progress in that platform.
Still the best form of price discovery is an auction, so I hope the Fed Cattle Exchange catches on. Why packers don’t participate is a mystery to me. I understand why feeders and packers—at least the big ones—prefer alternative marketing agreements. For the most part they are a bid-the-grid system. There is incentive for feeders to deliver better quality cattle, but it is more about supply chain management.
The talk of legislative mandates to force packers and feeders to trade on the cash market certainly can’t be efficient. The idea of packers buying 50 percent of their cattle needs on the cash market for delivery within 14 days seems a little unrealistic in these modern times.
A lot of folks seem to think we need another three packing plants to add another 7,000-head-per-day capacity to daily slaughter levels. I would have to think that the packers kind of like the way things are working now. We received a sobering message about supply chains when the pandemic and the Holcomb, KS, fire touched us.
To accomplish additional packing capacity, there would probably need to be a new player in the fed cattle beef packing business. Beef packing is a tough industry and the big boys will make it tough on a new player. There have been many people who tried to build and operate a plant that is producer friendly. The last few efforts have changed hands several times before they became stable operations. Then they usually end up in the hands of one of the Big Four. Then there is always the question of what to do with the drop, the byproducts.
The margins that the beef packing industry has enjoyed over the past several years might be enough for a new player. Twenty years ago, a 1 to 2 percent net margin was about it. Then they started adding value to products like case ready or even a grinding operation and started earning 7 to 10 percent.
I suppose if these plant-based meat imitation companies can gather billions of dollars from investors then the beef industry should be able to do it. But who’s going to do it? — PETE CROW